Choice
Utility Utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services.. It is, however, hard to measure since it is based on unknown values of the consumer. Determining a consumer's utility would require the assumption that the consumer will strive to maximize their utility, which is oftentimes not the case. Indifference curve: plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Opportunity cost Every object or choice comes with a price attached. Opportunity cost is the term used to describe the lost opportunities when one makes a decision. It is the most highly valued alternative. There really is no such thing as a free lunch. For example, Billy has to choose between having yams or tabouli for lunch. One or the other, not both. If he chooses tabouli, his opportunity cost is the yams. Likewise, if he chooses yams, his opportunity cost would be the tabouli. If there are multiple choices (for example: Eggs, Cap'n Crunch, or Pancakes), then only the second best option becomes the opportunity cost. so if you chose to get Crunchatized, your opportunity cost would only be the pancakes.. Scarcity is what happens when there are not enough resources to satisfy people's wants. The world contains finite resources while people have infinite wants, so scarcity will always exist. Opportunity cost is directly related to scarcity. In fact, it is because of scarcity that opportunity cost exists. If there was an infinite supply of everything, decisions wouldn't have to be made because everyone could have anything they wanted. However, scarcity exists, so people have to make choices. Basically what ever anyone does there is an opportunity cost because everyone has to give up something for another thing, like right now, I am using my time to do this blog, while I could use the time to do something else I want to do. Free and economic goods Free goods A free good is a good that is not scarce . It is more of a "gift of nature" and also supplied without labor and without limit. It is not a good that is being given away as a promotion or something. It is a good that is available in as great a quantity as desired with zero or near zero opportunity cost to society. Some obvious examples would be air or sunlight. They are essential goods but goods that are not scarce and have no opportunity cost (in most cases). However, free goods are not necessarily free. There are two main types of free goods: *Goods that are jointly produced. This is when a good is produced as a by-product of something more valuable. An example would be discarded packaging from a factory and then reused to move an item. *Ideas and works that are produced at zero cost, or almost zero cost. This is like software for a computer. It can be replicated a billion times without using any sources at all. An ideal example would be a rewritable DVD or a CD, or downloadable updates. An example of a free good is a "public park". Everyone has access to enjoy themselves at no cost.. Public parks aren't really free. They are an example of a non-rivalrous non-excludable good which for those reasons has to be provided by the government with tax money. Economic goods Economic goods are goods that are characterized by their scarcity as compared to the demand for them. They are goods that require human effort to obtain. This means any other kind of good that is not produced naturally and is finite. Unlike air, you cannot continue to upgrade a computer's internal hardware indefinitely, as the technology may not exist yet in a practical sense, or may be more expensive than you are willing to pay. Production-possibility curves (Production-possibility frontier) : • Production-Possibility Curves, also known as Production-possibility frontiers (PPCs or PPFs), are curves that show the maximum possible output of one good/ service as opposed to another. This is assuming limited resources. The Curve is the outer boundary that shows the maximum possible output. Production on the inside of curve shows inefficient allocation of resources. In a PPC, the opportunity cost of producing one more of one good is the amount lost in the other good. : • diagrams showing opportunity cost, actual and potential output. Point X is inefficient. This means that all the available resources are not being used. Point A, B, and C are all efficient, and this means that they use all the available resources. This diagram shows opportunity cost, as shifting from one point to another results in giving up a certain number of one good or another, and in exchange gaining one more of one good or another. Point Y is unachievable, because it is outside the range of usable resources.. The reason the curve is bowed outwards is because some of the materials that can be used to make wine are not as well suited for making cotton. Because of this, if you specialize 100% in one item or the other, you end up losing total number. The degree to which the curve is bent outwards is based on the degree of substitutes between product A and product B. : : • diagrams showing economic growth and economic development As growth and development occur, the curve shifts outwards. In this way, point Y becomes achievable. Category:Economic Basics